Small Cap Value Report (22 Aug 2016) - BVXP, TRCS

Good morning - and greetings from the Greek islands!

Yes, I'm on holiday for the next fortnight, but am happy to continue keeping an eye on the market, and giving a quick view on the day's small cap results & trading updates.

We haven't got access to our villa yet, so my laptop is perched on a white plastic table, by the beach, whilst the 9 family members I'm holidaying with are having a dip in the sea. Internet access isn't great, so this may or may not work.

Bioventix (LON:BVXP)

Share price: 1085p (up 11.3% today)
No. shares: 5.1m
Market cap: £55.3m

Trading update - for y/e 30 Jun 2016.

It's positive - ahead of market expectations;

The Board is pleased to report that revenues for the financial year ended 30 June 2016 are expected to be in excess of £5.3M (2015: £4.33M).

A strong performance during the financial year has been supplemented by a positive exchange rate effect.

Since the cost base of the Company follows the same trajectory as in previous years, both revenues and profits before tax are expected to be ahead of market expectations for the year ended 30 June 2016.

Valuation - FinnCap says this morning that revenue was expected to be £4.8m. So £5.3m is a significant beat. Also factor in that BVXP achieves super-high profit margins, and that should feed through into a sizeable profit beat, I reckon.

FinnCap also says that net cash is likely to be around £5.2m at 30 Jun 2016, so almost 10% of the market cap.

The broker is expecting EPS to rise by 13-20% in each of FY2016 and FY2017, pending a full update of its forecasts shortly.

Outlook - this bit sounds double-edged;

The Board is encouraged by the recent development activities of our partner, Siemens Healthcare Diagnostics. A Bioventix-created antibody is being used in a Siemens troponin product that is under development, as mentioned in a scientific presentation at the August 2016 American Association of Clinical Chemistry.

Troponin remains an important product for Bioventix’s future performance, as we expect to commence significant sales during the financial year ending 30 June 2018, which will offset revenues from other products which are expected to reduce during this period.

I'm a bit concerned that sales of other products are set to reduce. This seems to undermine the bull case somewhat - that product revenues are annuity-like.

My opinion - I've met the company, and have been familiar with the general bull case here for several years, but not in great detail. For me, the company is too small, and reliant on only about 10 staff, so I find that a little too high risk - what happens if the key people walk away?

On the plus side, its financial performance is remarkable - consistent good growth, and amazingly high profit margins. To be confident that will continue, I think you would really need to do very deep research to understand its niche markets properly. That should include views from independent third parties, customers, etc.

Tracsis (LON:TRCS)

Share price: 522p (up 6.1% today)
No. shares: 27.5m
Market cap: £143.6m

Trading update - for y/e 31 Jul 2016.

No surprises here - it all sounds in line with expectations.

FY 2015-16 was a year of significant progress for Tracsis on all fronts.  Core operations traded well and in line with expectations and the Group completed the acquisitions of Ontrac Limited ('Ontrac') and SEP Limited ('SEP'), whilst also making a strategic investment into Citi Logic Limited ('Citi Logic') and the disposal of Tracsis Traffic Data Pty Limited, a non-core trading subsidiary in Australia.

Both acquisitions, Ontrac and SEP, have performed well in the period since acquisition, with Ontrac securing several major orders for its software products, hosting and bespoke development work, and SEP experiencing a record year of trading bolstered by a busy summer calendar of events whilst working on several intra-Group technology initiatives.

Both businesses are trading profitably and performing to expectation.  In addition, the enlarged Group and our customer base has benefited from the extension and broadening of our service offering. Elsewhere, core Group operations have traded well and to expectation. 

More detail is given, but for me the key takeaway is that profit is in line with expectations.

Cash is considerable - giving scope for more acquisitions - at £11m at year end.

A small investment of £500k into an apps software company called Nutshell is also announced today.

My opinion - I like this company, and its management - who have demonstrated an excellent track record, and a disciplined & successful approach towards acquisitions.

This share never looks particularly cheap, but given its good track record, a premium seems justified to me.

My brother has just plonked an ice cold glass of Mythos in front of me, so I'll sign off for the day now. From tomorrow, I should have better WiFi.

Regards, Paul.

(usual disclaimers apply - especially that these are my OPINIONS, and never recommendations or advice)